Rumor has it that Google's soon to be released OS will be free. I was thinking about why they would give out a very valuable product to users at no cost; surely they could price Microsoft out of some market share without going to zero?

A couple thoughts:

80% of online ad spending goes to Google

The vast majority of ad spend still happens offline

Cheaper operating systems will result in cheaper PCs

Cheaper PCs will result in more computer/internet use

More internet use leads to more attention online

More attention online leads to more ad spending online

80% of online ad spending goes to Google

That's why Chrome will be free; it's an investment that will shift attention online faster than the current pace.